By Avi Salzman

Coming into the Iran war, most investors had little interest in energy stocks. Six weeks later, the energy sector has become the hottest area of the market by far.

The State Street Energy Select Sector SPDR exchange-traded fund is up 22% this year. The question now is whether the stocks -- many of which have hit record highs -- have any more room to rise.

Picking energy names is getting trickier. The stocks are already trading at large premiums to their historical price-to-earnings valuations, and their price momentum is starting to wear off as oil prices fall. Cease-fire talks have sent the State Street energy ETF down 2% in the past week and off about 11% from its highs. Some analysts say investors have begun steering clear, wary of the sector's day-to-day volatility.

What's more, high oil and natural-gas prices are already hurting consumer demand. The International Energy Agency said Tuesday that it now expects oil demand to fall this year, which would be the first annual decline since 2020. And there's already evidence that oil executives are locking in profits by selling their own stock -- not a great sign for investors. At companies like Chevron and ConocoPhillips, executives have sold stock this year, sometimes as part of prearranged stock-trading plans.

In the longer term, the war will undoubtedly inspire countries that have to import energy to redouble efforts to wean themselves off fossil fuels.

But Wall Street sees more gains ahead for some fossil fuel energy stocks -- particularly those that can help countries protect against future energy shocks like this one.

Jefferies analyst Lloyd Byrne says one long-lasting impact of the war will be a desire by countries to become more resilient to future oil shocks. That will include building new infrastructure like pipelines away from the Strait of Hormuz and stocking up on oil to put in storage. Companies like Italian energy contractor Saipem, offshore services firm Subsea 7, and oil services companies Baker Hughes, Halliburton, and SLB are likely to benefit from the desire to build out new oil-and-gas supply chains, he believes.

And companies that produce oil and gas away from the Middle East could notch a premium valuation because of their perceived resilience. Winners could include U.S. producer Ovintiv, Canadian energy company Cenovus, and Mexican producer Vista Energy, which has large operations in Argentina.

TD Cowen analyst Jason Gabelman also sees a profitable future ahead for some energy companies, but much depends on the path of peace negotiations. The bank says very different groups of companies will benefit in the event that the cease-fire holds and leads to peace, versus a scenario where violence erupts again.

In the event that negotiations result in a peace agreement, TD says that TotalEnergies could be poised for a bright future. The oil major has high exposure to the Middle East, so the reduction of risk there would be a boon. Among oil services companies, he likes SLB, whose scale and international exposure would give it an advantage.

But if the war escalates, Gabelman expects other companies to do better. That would include Equinor, a Norwegian energy giant with a prime position supplying natural gas to Europe. If the Strait of Hormuz stays closed, Equinor's gas will become even more important to its neighbors. Other big winners could include NextDecade and Cheniere Energy, American companies that export liquefied natural gas overseas.

Write to Avi Salzman at avi.salzman@barrons.com

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April 14, 2026 16:20 ET (20:20 GMT)

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